DexCom, Inc. Reports Third Quarter 2016 Financial Results

DexCom, Inc. (Nasdaq: DXCM) today reported its unaudited financial results as of and for the quarter ended September 30, 2016.

Third Quarter 2016 results:

Revenue grew to $148.6 million for the third quarter of 2016, an increase of 41% from the $105.2 million in revenue for the same quarter in 2015. Gross profit totaled $101.1 million for the third quarter of 2016, compared to a gross profit of $74.7 million for the same quarter in 2015. GAAP net loss was $18.8 million, or $0.22 per share for the third quarter of 2016, compared to GAAP net loss of $42.5 million, or $0.53 per share for the same quarter in 2015.

The GAAP net loss of $18.8 million for the third quarter of 2016 included $33.7 million in non-cash expenses, comprised primarily of share-based compensation, depreciation and amortization, compared to the GAAP net loss of $42.5 million for the same quarter of 2015, which included $62.1 million in non-cash expenses, comprised primarily of a $36.5 million research and development charge for the issuance of common stock related to an upfront payment associated with our Collaboration and License Agreement with Verily Life Sciences (the "Verily Collaboration Agreement") and $22.6 million of share-based compensation.

Non-GAAP net loss was the same as GAAP net loss for the third quarter of 2016, as there were no non-cash exclusions this quarter. Non-GAAP net loss was $6.0 million, or $0.07 per basic share for the third quarter of 2015, which excludes the $36.5 million research and development charge pursuant to the Verily Collaboration Agreement. (See the table below entitled "Itemized Reconciliation Between GAAP and Non-GAAP Net Loss and Net Loss Per Share" for a reconciliation of these GAAP and Non-GAAP financial measures.)

Cost of sales increased $17.0 million to $47.5 million for the third quarter of 2016 compared to $30.5 million for the same quarter in 2015, primarily due to an increased sales volume. Research and development expense decreased by $20.9 million to $43.9 million for the third quarter of 2016 compared to $64.8 million for the third quarter of 2015. The decrease in research and development expense is primarily due to the $36.5 million non-cash charge related to the Verily Collaboration Agreement for the third quarter of 2015, partially offset by additional payroll costs and $3.1 million in additional non-cash share-based compensation for the third quarter of 2016. Selling, general and administrative expense increased by $23.4 million to $75.7 million for the third quarter of 2016 compared to $52.3 million for the third quarter of 2015, with the increase primarily due to additional payroll, marketing costs and consulting costs, and $2.2 million in additional non-cash share-based compensation. As of September 30, 2016, DexCom had $127.3 million in cash, cash equivalents and short-term marketable securities.

Statement regarding use of non-GAAP financial measures

DexCom reports non-GAAP results for net income and net income per basic share in addition to, and not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. Our financial measures under GAAP include a substantial non-cash research and development charge pursuant to the Verily Collaboration Agreement listed in the itemized reconciliation between GAAP and non-GAAP financial measures included in this press release. Management believes that presentation of operating results that excludes this item provides useful supplemental information to investors and facilitates the analysis of our core operating results and comparison of operating results across reporting periods. Management also believes that this supplemental non-GAAP information is therefore useful to investors in analyzing and assessing our past and future operating performance.

These non-GAAP measures may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. We believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with U.S. GAAP and that these measures should only be used to evaluate our results of operations in conjunction with the corresponding GAAP measures. We encourage investors to carefully consider our results under GAAP, as well as its supplemental non-GAAP information and the reconciliation between these presentations, to more fully understand our business.

Conference Call

Management will hold a conference call today starting at 4:30 p.m. (Eastern Time). The conference call will be concurrently webcast. The link to the webcast will be available on the DexCom, Inc. website at www.dexcom.com by navigating to "About Us," then "Investor Relations," and then "Events and Presentations," and will be archived for future reference. To listen to the conference call, please dial (888) 771-4371 (US/Canada) or (847) 585-4405 (International) and use the confirmation number "41665869" approximately five minutes prior to the start time.

About DexCom, Inc.

DexCom, Inc., headquartered in San Diego, California, is developing and marketing continuous glucose monitoring systems for ambulatory use by people with diabetes and by healthcare providers.

Cautionary Statement Regarding Forward Looking Statements

This press release contains forward-looking statements that are not purely historical regarding DexCom's or its management's intentions, beliefs, expectations and strategies for the future. All forward-looking statements and reasons why results might differ included in this press release are made as of the date of this release, based on information currently available to DexCom, deal with future events, are subject to various risks and uncertainties, and actual results could differ materially from those anticipated in those forward looking statements. The risks and uncertainties that may cause actual results to differ materially from DexCom's current expectations are more fully described in DexCom's quarterly report on Form 10-Q for the period ended September 30, 2016, as filed with the Securities and Exchange Commission on November 1, 2016. Except as required by law, DexCom assumes no obligation to update any such forward-looking statement after the date of this report or to conform these forward-looking statements to actual results.
 
DexCom, Inc.
Consolidated Balance Sheets
(In millions—except par value data)
   
September 30, 2016 December 31, 2015
(Unaudited)  
Assets
Current assets:
Cash and cash equivalents $ 97.7 $ 86.1
Short-term marketable securities, available-for-sale 29.6 29.1
Accounts receivable, net 76.8 74.1
Inventory 44.7 35.2
Prepaid and other current assets 9.8   6.8  
Total current assets 258.6 231.3
Property and equipment, net 88.4 54.7
Intangible assets, net 1.6 2.2
Goodwill 11.8 3.7
Other assets 1.5   0.1  
Total assets $ 361.9   $ 292.0  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 58.6 $ 38.9
Accrued payroll and related expenses 27.0 24.9
Current portion of long-term debt 2.3
Current portion of deferred revenue 0.5   0.8  
Total current liabilities 86.1 66.9
Other liabilities 14.0   3.9  
Total liabilities 100.1 70.8
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 5.0 shares authorized; no shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
Common stock, $0.001 par value, 100.0 authorized; 84.8 and 84.5 issued and outstanding, respectively, at September 30, 2016; and 82.0 and 81.7 shares issued and outstanding, respectively, at December 31, 2015 0.1 0.1
Additional paid-in capital 876.0 776.8
Accumulated other comprehensive loss (0.7 ) (0.3 )
Accumulated deficit (613.6 ) (555.4 )
Total stockholders' equity 261.8   221.2  
Total liabilities and stockholders' equity $ 361.9   $ 292.0  
 
DexCom, Inc.
 
Consolidated Statements of Operations
(In millions—except per share data)
(Unaudited)
     
Three Months Ended September 30, Nine Months Ended September 30,
2016   2015 2016   2015
Product revenue $ 148.6 $ 104.2 $ 402.1 $ 269.9
Development grant and other revenue   1.0     1.3  
Total revenue 148.6 105.2 402.1 271.2
Cost of sales 47.5   30.5   140.4   84.0  
Gross profit 101.1 74.7 261.7 187.2
Operating expenses
Research and development 43.9 64.8 112.4 109.0
Selling, general and administrative 75.7   52.3   207.1   136.9  
Total operating expenses 119.6   117.1   319.5   245.9  
Operating loss (18.5 ) (42.4 ) (57.8 ) (58.7 )
Interest income 0.1 0.3
Interest expense (0.2 ) (0.1 ) (0.4 ) (0.4 )
Loss before income taxes (18.6 ) (42.5 ) (57.9 ) (59.1 )
Income tax expense 0.2     0.3    
Net loss $ (18.8 ) $ (42.5 ) $ (58.2 ) $ (59.1 )
Basic and diluted net loss per share $ (0.22 ) $ (0.53 ) $ (0.70 ) $ (0.75 )
Shares used to compute basic and diluted net loss per share 84.1   80.5   83.3   79.2  
 
 

Itemized Reconciliation Between GAAP and Non-GAAP Net Loss and Net Loss per Share:
  Three Months Ended September 30,   Nine Months Ended September 30,
2016   2015 2016   2015
GAAP Net loss $ (18.8 ) $ (42.5 ) $ (58.2 ) $ (59.1 )
Adjustment for non-cash research and development charge through issuance of common stock   36.5     36.5  
Non-GAAP net loss $ (18.8 ) $ (6.0 ) $ (58.2 ) $ (22.6 )
 
GAAP net loss per basic share $ (0.22 ) $ (0.53 ) $ (0.70 ) $ (0.75 )
Adjustment for non-cash research and development charge through issuance of common stock   0.46     0.46  
Non-GAAP net loss per basic share $ (0.22 ) $ (0.07 ) $ (0.70 ) $ (0.29 )
 
Shares used to compute GAAP net loss per basic share 84.1 80.5 83.3 79.2
Adjustment for shares related to non-cash research and development charge through issuance of common stock   (0.2 )    
Shares used to compute non-GAAP net loss per basic share 84.1 80.3 83.3 79.2

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